DETROIT The debate over the U.S. government's bid to reshape the American auto industry through bankruptcy comes down to this: the spreadsheets of a handful of former investment bankers pitted against the street sense of thousands of U.S. auto dealers fighting to survive.
If the veteran car dealers are right, the Obama administration risks driving Chrysler LLC and General Motors Corp into a costly dead-end by focusing more on financials than consumer psychology.
"No one understands the depths and the magnitude that a bankruptcy could take us through," said Chuck Eddy, whose family has had a Chrysler dealership for 40 years in Youngstown, Ohio. "You don't want to stick that toe in the water. It's the unknown that could create a total catastrophe."
The autos task force led by former investment bankers Steve Rattner and Ron Bloom has driven GM and Chrysler to slash costs and cut debt -- through bankruptcy if needed.
But with less than a week until a government-imposed deadline for Chrysler, critics are increasingly concerned U.S. officials have lost sight of a critical piece of the equation: the motivation of the American car buyer.
"I think they hear talk of bankruptcy and that at least gives them pause if not frightens them," Jack Nerad, an analyst at Kelley Blue Book, said of car buyers.
"There is some percentage of people still likely to consider Chrysler and General Motors brands even in bankruptcy, but I think when push comes to shove that figure will drop," said Nerad, whose KBB is a leading source for the resale value of used cars and trucks.
GM is expected as soon as this week to detail deeper cuts and a much quicker resolution to its turnaround plan, which includes slashing brands, dealers and thousands of jobs.
Chrysler, about 80 percent controlled by Cerberus Capital Management, has been given to the end of April to reach a definitive alliance with Italy's Fiat SpA, labor cost cuts and a debt reduction plan.
U.S. automaker Ford Motor Co, which has not sought emergency government loans, may be benefiting from consumer interest because of the dire conditions of its U.S. rivals.
CREATIVE DESTRUCTION OR JUST DOOM?
Dealerships, already facing tighter requirements from lenders, could face a run on their credit that would force many to shut down in a bankruptcy filing.
While U.S. carmakers want to slash the number of dealerships to match their much smaller operations, the potential destruction from a GM or Chrysler bankruptcy could be anything but creative or controlled, skeptics say.
"This is a much bigger, a much more complex, much more intricate situation than it first appears," AutoPacific senior consultant Jim Hossack said.
Therein lies the difficulty for the administration, lawmakers, the automakers and economists. There is no modern U.S. auto bankruptcy precedent to follow and few overall reorganizations with the cost or complexity.
GM itself argued in its February plan that was rejected by the U.S. auto task force that "all research indicates" a bankruptcy would have a dramatic impact on sales and revenue.
CNW Market Research also found that more than 80 percent of consumers intending to buy a new vehicle within a six-month period would not do so from a bankrupt company.
GM also noted that for companies with at least $1 billion in assets, only 3 percent of 159 bankruptcy cases completed since 1995 were accomplished in 90 days or less.
Under Chief Executive Fritz Henderson, who took over less than a month ago after the auto task force ousted his predecessor, Rick Wagoner, GM has reluctantly embraced bankruptcy as one of the options on the table.
In early April, GM sales chief Mark LaNeve said consumer perceptions about brands like Chevy and GMC had held up well despite the dire publicity surrounding GM. For that reason, some analysts expect a "good" GM emerging from any bankruptcy to take on a different corporate name.
The administration has said it would stand behind the warranties for GM and Chrysler vehicles to reassure car buyers about their purchases, which often rank as the second-biggest investment most consumers make after buying a house.
However, government guarantee of GM and Chrysler warranties may prove to be of little value in the marketplace.
Despite the cost -- or perhaps because of it -- the accepted wisdom in the auto industry is that many people choose a brand or a model because of the statement they want to make about themselves rather than for more rational considerations.
"On one level, you could say that the most rational car purchase would always be to buy a 2-year-old used car," Edmunds.com Chief Executive Jeremy Anwyl said.
With rivals such as Hyundai Motor already gaining traction by targeting American consumers worried about their jobs and finances, the road back from any bankruptcy could prove to be very steep for a bankrupt GM or Chrysler.
"Generally, what we find is that when consumers get confused, they just go elsewhere," Anwyl said. "They do have plenty of choices today. You have to make your car so compelling to the consumer that it would overcome any nagging doubts you might have."
(Reporting by David Bailey, editing by Maureen Bavdek)